Tuesday, April 30, 2019

A Good Comparables system must not allow Automated Valuation of Waterfront Homes

(Click on the image to enlarge)

Waterfront is often the most significant variable in comparable sales analysis. Generally, a waterfront home costs 10's of thousands to 10's of millions more than a non-waterfront home. In other words, just move a home one block from the non-waterfront block to the waterfront block and its value could jump many, many fold. 

Given the above axiom, one has to be very careful in relying on the automated comps to value a true waterfront subject, with unobstructed view and access. Unless the selected comps are very similar, the valuation would be off, perhaps way off. That is why, an all-algorithm approach (without the spatial verification) could be a hit-or-miss. Once the algorithm scores and returns the optimal pool, one needs to spatially verify the pool and select the final five, contributing to the subject valuation.

Since Homequant is a self-directed home valuation solution, we urge our users to "experience" the environment (by turning on the Street View and strolling around the neighborhood) before selecting the final five. If the scored pool comprises very similar and clustered comps, we suggest the use of the least adjustment method to pick the final ones. In the above graphic (from the Homequant site), once our algorithm scored and returned the pool of ten best comps, we manually selected the final five after the aforesaid data research and spatial experience. 

Again, we believe that the valuation of waterfront subjects must not be an all-algo hit-or-miss event; it must require proper manual and professional intervention. 

Thank you,

Sid Som, MBA, MIM
President, Homequant, Inc.

Monday, April 29, 2019

Homebuyers Must Validate BPOs and Appraised Values at Self-directed Valuation Sites

Instead of blindly accepting some model-driven estimates from online brokerage sites (we all know those estimates are not explainable) or totally relying on salespeople's comps, prospective homebuyers MUST do their own validations at a Self-directed Site. A free Self-directed Site will allow users to go through the valuation process in a step-by-step manner with the following FOUR steps:

1. Defining the Subject:  Subject property info in Public Records is often unreliable. As a prospective homebuyer, you must do your own research (MLS vs. Public Records, etc.) to validate the actual data, particularly the quantitative data (Lot size, Gross & Net Bldg size, Year Built, etc.). In Self-directed Sites, you can define/enter your own research data, without being forced to accept the data from Public Records. Here is an example of the basic subject data that you will be entering into a Self-directed system...


(Click on the image to enlarge)

2. Selecting Comps:  A list of sales - by default - does not become comps; nor do some cute model-derived estimates provide true home values. Comps - however close they are to the subject - require proper selection and adjustments. In a good Self-directed Site you will be allowed to enter your own comp selection and adjustment criteria. Here is an example...




3. Selecting Final Five:  The concept of Spatial comps (picking comps right off the map) is always a better way to zero in on the final five as it helps avoid picking comps from the "other side of the freeway" which could be an incompatible economic neighborhood, thus inflating or deflating the value of your subject. Here is an example...




4. Comps Grid & Value Analysis:  A good Self-directed site will offer a full range of statistically significant parameters including the percentile curve, rather  than just the average of the adjusted comps. Loosely speaking, 25th to 75th percentile range caters more effectively to the informed buyers, while 5th to 25th is more meaningful to investors and 75th and above is a potential companion for those bent on outbidding the competition. Here is a snapshot of a meaningful comps grid with line-item adjustments and final value analysis...




I picked the above graphics from Homequant.com as I own and operate it, to avoid having to deal with any copyright issues. My Homequant site is totally self-directed (no modeled values), totally free (no strings), and requires no login or registration whatsoever. Please choose the self-directed site that works best for you.

Note: All adjustments in Homequant are linear. In Automated Valuation Modeling (AVM), non-linear adjustments (due to the nature of their contributions) are generally used via non-linear regressions. If you are trying to learn AVM or understand how to make advanced non-linear adjustments to your model, please check out my recent book on AVM "An  Illustrated Guide to Automated Valuation Modeling (AVM) in Excel..." on Amazon and Payhip.


http://www.homequant.com/

http://www.homeyada.com/

homequant@gmail.com


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Friday, April 26, 2019

First-time Homebuyers must Verify Appraiser or Assessor Values in Four Easy Steps

Step 1 - Verify Subject Info
(Click on the image to enlarge)
Subject Info is often inaccurate in Public Records so verify it (compare with listings). For example, our subject property (single family home) is located in Orlando, FL, comprising roughly 1,900 SF building area, 40 years old and sits on a 10,000 SF lot.

Step 2 - Verify Comps Criteria

Sales must be properly selected and adjusted to become comps. In this example, sales within two-mile radius and 25% of the Subject's physical attributes (Land, Bldg and Age) are considered to be comps. Also, all comps are adjusted for time (sale dates) at 6% annual growth, projecting out to 12-06-2017 (a tentative offer date). Therefore, the Subject will be valued as of that date. To converge all Comps to the Subject's physical attributes, they are adjusted at $10 per Land SF, $100 per Bldg SF and $1,000 per Year of Depreciation. If the subject is located in a pricey neighborhood, increase the adjustments as appropriate.

Step 3 - Select Final Five Comps

From a pool of ten Comps - based on the selection criteria set forth - five closest ones (based on the distance from the Subject) are chosen. Sales recency and least adjustment are the two other selection methods. Before finalizing, always take a look at them spatially (on the map), as the comps from the other side of a major artery/freeway could be incompatible despite having met the distance criteria.

Step 4 - Verify Valuation

The selected final five comps are producing the subject valuation. While the Median Adjusted Sale Price (ASP) is the most probable value for this subject, 25th to 75th Percentile range is the most probable range. Alternatively, an investor might consider up to the 25th Percentile, while someone bent on outbidding the competition to acquire the property could start at or above the 75th Percentile. It is therefore quite relative. Unlike an AVM (a statistically significant solution!), a comparable sales solution is very subjective as well.

I picked the above tables and spatial graphics from Homequant.com as I own and operate it, to avoid having to deal with any copyright issues. My Homequant site is totally self-directed (no modeled values), totally free (no strings / no salesperson will call you), and requires no login or registration whatsoever. Please use the system that works best for you.

Note: All adjustments in Homequant are linear. In Automated Valuation Modeling (AVM), non-linear adjustments (due to the nature of their contributions) are generally used via non-linear regressions. If you are trying to learn AVM or understand how to make advanced non-linear adjustments to your model, please check out my recent book on AVM "An  Illustrated Guide to Automated Valuation Modeling (AVM) in Excel..." on Amazon and Payhip.


http://www.homequant.com/

homequant@gmail.com

Thursday, April 25, 2019

A Good Home Valuation System Allows Users to Select Five Best Comps from an Optimized Pool

(Click on the image to enlarge)

An educated and informed researcher is capable of optimizing (define, score and rank) a pool of comparable sales ("comps") using a set of meaningful criteria and selecting the five best to value a subject. In order to illustrate the point, let's create a pool of up to ten best  comps within a 2 mile radius of the subject, constraining all three characteristics variables - Land, Bldg and Age - to 25% range, as well as time adjusting all incoming sales at 6% annual (.5% per month) growth.



Once the pool is created by the scoring algorithm using the criteria set forth above, let's select the Five Best comps  (closest distance  has been used here to evaluate the pool), leading to the final five. At this point, the researcher has to make sure the comps are being picked from the same or compatible neighborhood(s). Often, comps from the other side of a highway/major artery are not compatible, despite having met the distance criteria. 

That is why, we - at Homequant - call the final five "Spatial Comps" allowing users to pick them (select/deselect) right off the map. In other words, while we apply algorithm to score the optimized pool (using the user's adjustment matrix), we make the selection of the final five a spatially manual process as it can make or break the entire composition.  



Now, let's take a look at the Comps Grid to understand how a researcher would interpret the final value. While the most Probable Value is the Median Adjusted Sale Price (ASP), the 25th to 75th percentile Range offers the most Probable Value Range for potential home buyers, although an investor might consider a lower value range, say up to the 25th percentile, while a buyer bent on outbidding the competition might consider a more lax value range, say the 75th percentile and above.

I picked the above tables and spatial graphics from Homequant.com as I own and operate it, to avoid having to deal with any copyright issues. My Homequant site is totally self-directed (no modeled values), totally free (no strings), and requires no login or registration whatsoever.

Note: All adjustments in Homequant are linear. In Automated Valuation Modeling (AVM), non-linear adjustments (due to the nature of their contributions) are generally used via non-linear regressions. If you are trying to learn AVM or understand how to make advanced non-linear adjustments to your model, please check out my recent book on AVM "An  Illustrated Guide to Automated Valuation Modeling (AVM) in Excel..." on Amazon or Payhip.


http://www.homequant.com/

http://www.homeyada.com/

homequant@gmail.com

Wednesday, April 24, 2019

Are You a Future Superstar? Take the Test.

** Intended for New Graduates **

Save the obvious: You aced the SAT and GMAT, graduated from Ivy, completed a top MBA program and joined a Dow component. Despite these astounding achievements, you are not a superstar -- yet. Just being brilliant does not make you a superstar. Let's put it this way: It is necessary, but not sufficient. In fact, only a very small percent of brilliant minds goes on to be recognized as true superstars. In order to be a superstar, you must uniquely and spontaneously rise above the smart peers, with a higher persona and more humane qualities. So, what are those additional qualities?

1. They Protect and Promote Staff and Peers -- Superstars are some of the most selfless leaders, always putting the interests of staff members and peers ahead of their own. Protecting and promoting others is not only their second nature, but they also go the extra mile in doing so. Atop, they achieve all this quietly and consistently, without letting anyone know that they are being so selfless in taking care of their immediate environment. As a kid I was confused about something so I sought my mom's advice. Her spontaneous reaction was, "Son, whatever you do, always think of others first. If you act that way, you will never have to worry about yourself; God will always take care of you." That's the universal mantra all superstars subscribe to.

2. They are Very Humble, Pleasant and Soft-spoken -- Superstars tend to be incredibly humble, delightfully pleasant and esthetically soft-spoken. Though the departments or agencies they lead invariably outperform all others but it is beneath their dignity to ever brag about it or take any personal credit for their achievements. In fact, they generally give full credit to their staff, or to a collective effort, at best. Of course, the evil folks around them interpret these great virtues as signs of weakness. It's always the average and overrated that tends to be snob and arrogant. On the other hand, superstars are like saints and, therefore, are uniquely qualified to smile away all evil stimuli. 

3. They are Least Confrontational, Move on when Environment becomes Intolerant -- Superstars are usually the least confrontational and mostly the low-key kind. They never waste time and energy on meaningless or greed-filled confrontations and exercises. On the contrary, they are extremely smooth operators, uplifting the environment with unprecedented intellectual faculty and superior emotional stability. As they know their mission all too well, they rarely stick to one job for too long. Despite the conventional wisdom, they move on for newer and bigger challenges when they realize they do not have much more to contribute to that environment. Alternatively, when they face intolerant environments (e.g., psycho boss, confrontational peers, unmanageable staff, hostile labor unions, etc.), they move on, knowing very well that there is a better home elsewhere. Money, power and prominence do not entice them. Contributing at the highest level is the sole mission of their existence.

4. Steve Jobs' Manpower Plan is tailor-made for them -- Steve Jobs (RIP) used to say, "It does not make sense to hire smart people and and tell them what to do. We hire smart people to tell us what to do." In other words, great institutions hire the best and let them work on projects of their own choosing, thus allowing them the opportunity to maximize contributions to the business objective. Superstars always look for such flexible environments, with adaptable supervisors. They do not enjoy environments where they have to constantly take instructions from the second-rate supervisors. As they get started, they quickly learn and understand the big picture, figuring out where they could be the most productive and contribute optimally. A great operations manager is a great employee, but not a superstar. A superstar is an original thinker, a consistent enterprise-level solutions provider, a selfless team player, and a passionate protector of all. They love what they do. 

5. They Prove their Vision in important Management Meetings -- While superstars tend to be low-key, they take control of the important management meetings, ensuring that their vision sets the agenda. This is not a selfish act; this is done to educate the attending senior management of the availability of the forward-looking agenda that aligns more effectively with the corporate objective than the erstwhile agenda often promoted by the incompetent supervisors (in place due to political appointments, nepotism, favoritism, quotas, etc.) to maintain the status quo and control. When the incompetent steals the limelight, the irrelevant agenda disparages the big picture, denigrating the greater good and weakening the power of the institution. Superstars' DNA forces them to fight tooth and nail to strengthen the institution, not ever weaken it. 

6. To Them, Quality is Everything -- Their lives revolve around quality, leaving the quantity to the great employees. So, they carefully research and join environments that continually emphasize and consistently promote quality ahead of quantity. Steve Jobs used to say, "One home run is much better than two doubles." Many brilliant minds dilute themselves by trying to strike a balance between quality and quantity. Fortunately, the budding superstars figure out from the get-go that they are mutually exclusive, so they learn to focus on quality, i.e. research and innovation. In order to entice and hire the superstars, the great visionary entrepreneurs offer disruptive opportunities leading to world-class creativity and innovations, coupled with an unrestricted domain of flexibility with power of decision-making -- the two elements that helped fashion the great institutions like Apple, Google and others.

7. They Know the Importance of Time in Professional Life and how to Optimally Manage it -- This is one area where the superstars beat the other brilliant minds. Superstars come to terms that time is the most precious thing in professional life so they learn to efficiently utilize every moment of it. Their inherent aversion for arrogance teaches them to accept mistakes honestly, making it part and parcel of their professional learning and growth, which in turn help them grow into natural perfectionists. In a way, superstars' lives closely resemble those of the cake decorating champions who never fail to complete their masterpieces on time, every time. Whether they are decorating the next masterpiece or working on applying more intelligence to the Rover on Mars to seek out water under the surface, they are constantly monitoring and managing time, with utmost precision and respect, considering how brief the human life span is and where time waits for none.

8. They believe that the Total is Greater than the Sum of the (Contributing) Parts -- Superstars never waste time and energy in looking at the glass as half full or as half empty; to them, it's always full. They know the sum total of people's strengths far outweighs their weaknesses so their management style is always strength-based. From their young life, they learn to figure out how to harness the strength of an available resource pool to the max. As a result of their ever-positive attitude and outlook towards life and work, the departments or agencies they manage perform incredibly efficiently, remaining consistently ahead of the competition. While the competition evaluates each resource as a combination of strength and weakness, they look at resources as an all-strength event or a composite which, in turn, helps them to deploy and utilize resources at a much faster pace, more effectively, and often incredibly cheaply. 

9. They are Incredibly Efficient Budget Managers and Lead by Example -- While the average and over-rated perennially cry for an ever-expanding budget (that's the only thing they are really good at!) to run from their incompetence, the superstars, on the other hand, constantly prove to the world the need for and the ultimate use of asset management. They are the living proof of: If you place a group of average people under a great leader, they will rock -- just a matter of time. Of course, the flip side is equally true. The reason some great institutions go down the tube is the poor leadership with bankrupt vision. On the way down, they keep pointing fingers at everyone and everything except themselves. Superstars never pass the buck. They also develop an excellent eye to seek out talent, putting them in charge of the key and strategic nodes to strengthen their departments or agencies, setting examples for others to follow. Setting and leading by example is inherent in them. But you will never hear them asking for a bigger budget or bragging about their performance. They are smooth and quiet operators.

When a superstar leaves, s/he leaves behind a long-lasting vacuum, rarely replaced. Evils drive them away. Fools rejoice after regaining their paradise. The smart ones share their fond memories for years, telling the world it was their once-in-a-lifetime privilege to have known and worked with a superstar.

Thank you,

Sid Som
Homequant, Inc.
homequant@gmail.com            


Also Read:
An Interview Case Study
How to Ace an Interview


Coming Soon...Sid's New Book: 
Life, Logic and the Power of Nine (Branding)

A Good Home Valuation System Allows Least Adjustment Method alongside Distance and Sales Recency

Of the three popular methods to evaluate comparable sales ("comps") - distance radius, sales recency and least adjustment - least adjustment is the most powerful method. 

Since most comps are pooled from a limited distance within the same neighborhood and older sales are generally time adjusted, distance and sales recency become less powerful methods than the least adjustment. 

1. Least Adjustment

(Click on the image to enlarge)
The comps that require the least (quantitative) adjustments in terms of time and attributes are generally the best comps (in the above example, Least Adjustment is derived off the 'Total Adjustment' column). Remember, while determining least adjustments, signs are always ignored; therefore, +$3,000 and -$3,000 are tied.

Also, when the scored pool is large enough (a pool of 10 comps is considered large), it is advisable to remove the two outliers (i.e., comps with lowest and highest adjusted sale prices - # 3 and 5 in this example) before applying the selection.


2. Distance Radius


Based on this method, five comps closest to the subject (in linear distance) are selected. Notice that the outliers didn't influence the top five here.


3. Sales Recency


Obviously, this method requires the selection of the five most recent comps (in terms of the Sale Dates), post removal of the outliers.

Again, since Distance and Recency are already baked in the scoring, they become less powerful as final comps selection methods than their Least Adjustment counterpart. Therefore, a good home valuation system must provide for Least Adjustment alongside Distance and Recency.

I picked the above tables and spatial graphics from Homequant.com as I own and operate it, to avoid having to deal with any copyright issues. My Homequant site is totally self-directed (no modeled values), totally free (no strings), and requires no login or registration whatsoever. Please use the system that works best for you.

All adjustments in Homequant are linear. In Automated Valuation Modeling (AVM), non-linear adjustments (due to the nature of their contributions) are generally used via non-linear regressions. If you are trying to learn AVM or understand how to make advanced non-linear adjustments, please check out my recent book on AVM "An  Illustrated Guide to Automated Valuation Modeling (AVM) in Excel..." on Amazon and Payhip. 

If you are a new graduate, analyst or researcher, request a complimentary PDF copy of the book.